Think analytics for success

23.02.2007
It's no secret that companies such as Capital One Financial Corp. and Harrah's Entertainment Inc. have for years successfully analyzed data about their customers to gain an edge over rivals. Now that competitive analytics and business intelligence techniques are more mainstream, corporations are jockeying for specialists who have solid analytical skills, said Thomas H. Davenport, the President's Distinguished Professor in Information Technology and Management at Babson College in Wellesley, Mass. Davenport and Jeanne G. Harris, executive research fellow and director of research at the Accenture Institute for High Performance Business in Chicago teamed up to co-author Competing on Analytics: The New Science of Winning which is being published March 6. The two spoke this week with Computerworld. Excerpts from that interview follow:

What led you to write this book? Davenport: We had collaborated earlier on a project looking at how companies develop analytical capabilities. We both found it rewarding. Jeanne has been at this whole decision support thing for some time. I had a hypothesis that was verified in our initial research that human factors might differentiate companies more than just data. I wanted to explore that more. And I was approached by SAS (Institute) and Intel and they asked if I would look at who some of the leading analytical users were.

Harris: What's new and exciting is that instead of using BI as this point of light, companies are emerging to use it as a source of competitive differentiation.

How are some leading organizations using analytics to gain a competitive edge? Davenport: One of the things that we say is that companies should be using analytics to support their distinctive capabilities. For Netflix, that distinctive capability is increasingly being able to predict what DVDs their customers will like. They have developed an audience preference algorithm (called Cinematch) in which they try to predict whether a customer will enjoy a movie based on how much they liked or disliked other movies. They're willing to pay $1 million to anyone who can improve the algorithm by 10% under a contest they're having.

Harris: UPS just announced that they're totally redoing their (ground delivery) routes to reduce their number of left turns their trucks make to improve productivity and reduce gas consumption.

You also mention The Boston Red Sox in the book. How are they using analytics to try gain an edge over the Yankees? Davenport: In professional sports in general, the key analytical capability is figuring out which players to acquire in the first place. The Red Sox aren't quite as rich as the Yankees but they are richer than the Oakland A's, who have to be really good at evaluating undervalued players. The Red Sox have figured out how the Oakland A's can do the initial work and then hire the players if the A's can't pay them enough.